INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2018

Components of Income Tax Expense Attributable to Income from Operations

For the years ended December 31, 2018, 2017 and 2016, income tax expense attributable to income from operations consisted of the following (in thousands):



	2018			2017		2016
Current expense:
Federal	$	1,732		$	2,594	$	6,330
State	124			417		638
Total current	1,856			3,011		6,968
Deferred expense/(benefit):
Federal	2,253			942		(2,177		)
State	345			382		(387		)
Remeasurement of deferred tax assets	(445		)	2,927		—
Total deferred	2,153			4,251		(2,564		)
Income tax expense	$	4,009		$	7,262	$	4,404

Reconciliation of Income Tax Expense

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):



	2018			2017			2016
Statutory federal tax rate	21		%	34		%	34		%
Tax computed at statutory rate	$	4,963		$	5,006		$	4,907
Increase (reduction) resulting from:
Tax-exempt income	(430		)	(663		)	(511		)
831(b) premium adjustment	(167		)	(269		)	(368		)
Dividend exclusion	(7		)	(8		)	(5		)
State taxes, net of Federal impact	262			201			165
Nondeductible interest expense	7			8			9
Remeasurement of deferred tax assets	(445		)	2,927			—
Other items, net	(174		)	60			207
Income tax expense	$	4,009		$	7,262		$	4,404
Effective tax rate	17.0		%	49.4		%	30.5		%

Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018 and 2017, are presented below (in thousands):



	2018			2017
Deferred tax assets:
Allowance for loan losses	$	4,834		$	5,396
Accrual for employee benefit plans	136			186
Depreciation	(93		)	86
Deferred compensation and directors' fees	634			872
Purchase accounting adjustment – deposits	—			7
Purchase accounting adjustment – loans	7			35
Purchase accounting adjustment – fixed assets	149			149
Gain on deemed sale of securities	339			567
Net unrealized losses on securities available for sale	1,590			1,169
Accounting for defined benefit pension and other benefit plans	2,315			2,370
Nonaccrued interest	625			544
Accrued expense	200			868
Other items, net	153			160
Total gross deferred tax assets	10,889			12,409

Deferred tax liabilities:
Deferred loan fees and costs	640			676
Prepaid pension	3,141			3,023
Discount accretion	137			239
Core deposit intangible	1,101			1,026
REIT dividend	1,048			844
Other	109			101
Total gross deferred tax liabilities	6,176			5,909
Net deferred tax asset	$	4,713		$	6,500